[Note: This is not a transcript. It is my notes of the proceedings as typed as fast as I can. Spelling errors will be corrected this evening. I will update every 15 minutes or so, so please either bookmark and check back or refresh your screen every so often for the latest updates.] 1:10 pm Former Qwest CFO Robin Szeliga is back on the stand. It’s still direct examination, being conducted by Prosecutor Colleen Conry. Szeliga describes recurring vs. non-recurring revenue. Another segment of the meeting tape is being played. Nacchio says, “Our targets for 2001 still look reasonable. There isn’t going to be a boom like last year. We have to have a strong first quarter of 2001. ” He mentioned the rule of 78’s. Conry then asks Robin, “What is it?” It’s compounding. She leaves the witness box to go to a chart and demonstrate the rule of ’78s.
The problem is that it changes the concept of non-recurring vs. recurring revenue. You don’t have a building block for growth. You are making your targets through non-recurring revenue. You need a shift to occur. She spoke with Mohebbi about how important it was to get out of the gate early in 2001 with product sales. They spoke to Nacchio about how important it was. Nacchio was in agreement. Around the end of the year, they had the various department CFO’s prepare revenue charts of the individual product sales. 1:25 pm She had discussions with Nacchio in mid December and late December and planned another for the beginning of the year. The one at the beginning of the year was to get Nacchio and the business unit heads together to get everyone on the same page. She also met with Mohebbi and asked him to go to Nacchio and be very firm and aggressive on how important the recurring revenue was and how important it was to get it going early. She did not communicate much with Nacchio by e-mail. They communicated by phone, face to face or in writing. He didn’t use e-mail much. Govt exhibit 921 is a Feb 23, 2001 Memo from Mark Bivens to Nacchio, Drake Tempest, Woodruff, Mark Schumacher and Ian Ziskin, She describes the Executive Summary and Monthly Dashboard report (showing actual results vs. budget) The January revenue is 8% higher than last year but less than budget. There’s a gap of $34 million. They move to the Feb. 2001 Monthly Dashboard Report, Exhibit 924. Executive summary: Feb revenue is 9% higher than last year but 72 million less than budget. On an intermittent basis, she would prepare forecasts. Exhibit 923: First quarter forecast update, 3/20/01. She had this prepared to speak to Nacchio and Mojebbe before she left on vacation. She was acting CFO at the time. She doesn’t know if she discussed it with Nacchio. It includes revenues initiatives. They assigned letters to them in terms of how likely they were to occur. 1:45 pm She had a document prepared called Product Revenue Update on April 9, 2001. She discussed it with Nacchio and Mohebbi at the same time. Mark Evans, Drake Tempest were there. It shows that the shift they needed to meet budget objectives was not occurring at the end of the first quarter. Data and IP accounted for 60% of plan growth. As a result ,base recurring revenues were planned to grow 3.5% — 2x the rate experienced in 2000. Prior to today, she’s helped Government to prepare some charts for trial. They are admitted as summary exhibits under Evidence Rule 1006. The first is shows year over year growth in recurring revenue for 1999 to 2000. From 1999 to 2000, growth in non-recurring revenues was relatively flat. The next chart compares budgeted growth by quarters between 2000 and 2001. Budgeted vs. actual growth for recurring revenue. For recurring revenue, the budgeted growth is much larger for 2001 than 2000, and in some cases, two times larger. 2:00 pm What this means: the needed shift is not occurring at the rate expected. The recurrent revenues in areas such as wireless and residential local services were not occurring as needed. One quarter into the new year, growth products aren’t kicking off the way they needed them to. The next chart is called “Current estimate includes a shortfall of recurring revenue growth of 19%.” This includes numbers through April 9, 2001. Comment by me: This has been hours now of accounting minutia. I keep looking at the jury to see how they are reacting, since I keep getting lost in it. None of them are taking notes. They are looking either at their exhibit monitors (each juror has their own) or at the witness or the prosecutor. In other words, they are paying attention to what is happening but quite a few look clueless. A few look bored. It is about the driest witness examination I can remember. It also seems scripted. The point seems to be that the business unit heads told Nacchio they couldn’t meet the budget targets and he wouldn’t lower them. 2:21 pm Discussing business unit reviews now. Nacchio attended them. Then they go to the wholesale unit review of April, 2001. She was present when Nacchio and Casey reviewed them. There’s an e-mail from Casey’s CFO Cathy Coach to which she attached the review and says it will be shared with Nacchio. *********** In the spring of 2001, she spoke with Nacchio after the first quarter results were in. April or May. Mr. Mohebbi was there, and maybe Mr. Temple. Took place on the 52nd floor conference room outside the executives offices. What did you and others tell Nacchio? Nothing specific. His response? He participated in the discussion but there was no conversation from her to him or back about taking the numbers down. Now on to earnings conferences calls with analysts. At Qwest, it would be Nacchio, the CFO (her), Mojebbe, Temple. Investor relations person Lee Wolfe was also on the call. She wrote the script for the 4/24/01 call . She had been CFO for seven days. Nacchio told her to stick to the script and he’ll handle the questions. She says her comments on the call were truthful, but she omitted information. ***************** She had stock options at Qwest. She got them over the time frame she worked there as she moved from job to job. As a Qwest CFO, she was restricted from selling stock under the insider trading policy. Conry shows her an email sent to her and other executives on April 16, 2001 about selling stocks. It tells her when the trading window opens. It tells them they may not trade outside the trading window. She exercised her stock options. 10,000 of them. She sold all of her shares. She had 236,000 vested options. $28.50. She sold for $41 share. She made $125,000. She plead guilty to one count of insider trading in July 2006. All of the jurors are taking notes now. She had material, non-public information. She has been sentenced. She paid $250,000 fine and she has to pay back the $125,000 in profits. She got 6 months home detention and 2 years probation. She had to wear an ankle bracelet. She got a 5k motion for a departure for her cooperation in the criminal case. She has agreed with the SEC that she is neither denying or admitting allegations filed against her in their complaint. She has to pay a fine and pay restitution, $577,000., and she is barred for life from serving as an officer of a public company. Time for a new thread.